WASHINGTON (Reuters) –
The U.S. Treasury Department will on Tuesday tap a $50 billion housing rescue fund to pay off mortgage investors and reduce monthly payments for millions of borrowers, said a senior administration official.

Mortgage servicers that own a small stake in costly loans will receive a cash payment to either erase the debt or agree to accept a reduced return on their investment.

"It will be a shared effort with lenders, investors, borrowers and the government to ease or extinguish second-lien mortgage payments," a senior administration official told Reuters.

During the height of the housing boom, some borrowers were able to buy a home with no downpayment by adding a second lien, and many of those loans are now failing as the economy and housing market struggle.

Second liens typically carry a higher interest rate than primary mortgages but those second liens will have a lower rate under the modification plan, the officials said.

"The second lien holder, as is appropriate in the junior position, is taking more of a reduction in interest rate," one official said. "The interest rate will go at least as low as the interest rate on the first and it will (fall) much further to get there."

Tuesday's announcement will build on President Barack Obama's housing rescue plan announced in February that aims to reduce the cost of homeownership for up to 9 million borrowers straining to make their monthly payments.

RESCUE GETS A REVAMP

Officials will also announce new incentives for the Hope for Homeowners program conceived last summer to refinance hundreds of thousands of struggling borrowers.

In fact, the program has only aided a handful of homeowners and the Department of Housing and Urban Development will offer mortgage servicers thousands of dollars for each home loan that they successfully modify under that troubled program, the officials said.

The officials said that they will continue to remove other bureaucratic encumbrances and expand incentives where needed to steer more homeowners away from default.

Some analysts have faulted officials and lawmakers for leaving Hope for Homeowners hamstrung by the question of second liens as those investors have had a near veto power on modifications.

"It has taken policymakers a long time to realize that second liens are a showstopper," said Dwight Jaffe, a professor of housing finance at Berkeley University in California.

HONG KONG (Reuters) –
Asian stocks dropped for a second day on Tuesday and Japanese shares hit a one-month low, with investors fretting about the potential economic fallout if the swine virus outbreak becomes a full-fledged pandemic and the results of U.S. bank stress tests.

Futures on the S&P 500 slid 1.5 percent and sparked further selling across Asia after the Wall Street Journal said that U.S. regulators were pushing Bank of America (BAC.N) and Citigroup (C.N) to raise more capital after the initial results of the stress tests.

European stock futures were down between 1.4 percent and 1.8 percent before the start of trade.

More countries have reported cases of the flu, and some such as Australia and South Korea were testing for the virus. The World Health Organization raised its alert level to be a step closer to declaring the first flu pandemic in 40 years.

But so far the deaths have not spread beyond Mexico, where the outbreak began and 149 people have been killed.

Companies such as drugmakers and producers of face masks got a boost on an expected increase in demand, while airlines extended losses on worries the swine flu will cause a sharp reduction in travel around the world.

Market players cut back on holdings of riskier higher-yielding currencies and commodities for a second day, taking profits on winning bets since the beginning of March on hopes a global economic recovery was taking root.

"Active trade is limited as the market is trying to grasp how much swine flu could impact the global economy. We had finally begun to see a bottom for the global economy and that has been now ruined by pigs," said Tsuyoshi Segawa, equity strategist at Shinko Securities.

The Australian and New Zealand dollars -- still among the highest-yielding of major currencies -- hit one-month lows against the yen as investors cut back on traditional plays favoring carry trades that were in vogue as stocks rallied.

The Aussie was down 1.8 percent against the yen at 67.30 yen and shed 1 percent against the dollar to $0.7021. The kiwi shed 2.5 percent against the yen.

Between early February and mid April, the Aussie had surged more than 30 percent against the yen as carry trades -- using low-yielding currencies as a cheap source of funds to buy higher-yielding currencies -- came back into favor.

The Aussie's correlation has been strengthening against key stock markets over the past few weeks, suggesting that investors have been cutting positions at the same time across markets.

The dollar was steady after posting gains the previous day as investors park funds in the U.S. currency as a haven while shedding holdings of riskier assets.

The dollar index, a gauge of its performance against six major currencies, was flat at 85.677 (.DXY) after having jumped 1.1 percent on Monday -- the biggest daily rise in a month.

DUBAI (Reuters) –
Qatar is in talks to buy a stake in Germany's Porsche (PSHF_p.DE) and may also invest in other carmakers as the Gulf gas exporter looks to park some of its sovereign wealth abroad, according to media reports.